Slack IPO

Investment Analysis Clubs Saul’s Investing Discussions
1

I posted most of the below on the NPI board, and have added a couple numbers that may be of interest.

Slack will begin trading on Wednesday (June 20) on the NYSE under ticker WORK. Like Spotify, Slack said to heck with big underwriters like Goldman Sachs, we’ll offer the shares through a direct listing.

Slack was not the first company to offer group chat and 1-to-1 chat for corporate employees, as an alternative to email. I remember using Atlassian’s Hip Chat back in the day. But Slack is certainly the most successful at having built a pretty viral platform for business chat. They also easily integrate with other apps like Salesforce, Google Calendar and New Relic. So, for example, your IT Ops team can get notified on their Slack mobile apps if New Relic sees a server hitting a memory limit. For us, this feature alone was worth the subscription price.

So let’s look at the numbers. Slack is already trading on the secondary market at $31.50 per share, giving it a valuation of $17 billion.


**Slack's Numbers**
Q1 (ended 1/31/19) Revenue: $135M
YoY Rev. Growth (MRQ):      67%   
Estimated FY 2020 Revenue:  $600M
FY 2019 Actual Revenue:     $400M
Rev. growth guidance:       50%
Current valuation:          $17B
FY 2020 P/S ratio:          28
*Est. FY 2020 billings:     $735M
FY 2019 billings:           $517M
Est. billings growth:       42%
  • Billings is defined as sales to new customers plus renewals and sales to existing paid customers.

So it’s a rich valuation, but that’s par for the course these days. Slack is interesting to me because it has so few competitors, it’s viral and people love using it. Take Slack away from a business, and there would be loud protests, because there’s nothing as good to replace it. I’ll be looking to start a small position this week.

Ron

4 Likes
2

Slack is interesting to me because it has so few competitors
Seems like a pretty crowded field to me. Slack may be the best of them, I don’t have an opinion, but this list shows at least 28 alternatives to Slack: https://www.workzone.com/blog/slack-alternatives/

Invest wisely my friends

1 Like
3

Take Slack away from a business, and there would be loud protests, because there’s nothing as good to replace it. I’ll be looking to start a small position this week.

We used to use Slack here at the office; fairly large footprint (probably 500 total users). Our team has stopped using it for a variety of reasons.

  1. Our company uses G-Suite; and Google Chat works just as well (if not better)

  2. Growing “tired” of Slack; it can be disruptive and many on the team complained that they couldn’t keep track of all the conversations - as a results we moved to [1] and created more guidelines on when to use chat vs. email vs. doc sharing

I personally would not be surprised if Slack lost a lot of customers over the next 3-5 years.

tecmo
…

5 Likes
4

Anecdotally my company is in the process of switching from Slack to Mattermost, #14 on the list in the link above. Ppl, myself included, love Slack, but I wouldn’t go as far as to say there are ‘loud protests.’ It is what it is, and ppl just need to roll with the change. Same thing with switching to to Skype, and Hipchat, and Slack before. Same thing with switching to Webex, and GoToMeeting, and Zoom too. Nothing is head and shoulders above the other, with a particular feature that is so crucial that real protests against switching might actually matter. If anything, perhaps the most important thing lost each time there is a switch is all that searchable history that is lost from the old platform.

In related news, MatterMost is an open source project and just announced a $50mm fund raise:

https://venturebeat.com/2019/06/19/mattermost-raises-50-mill…

They appear to have some serious clients too:

As part of the round, Twitter COO Ali Rowghani will join Mattermost as board director and Battery Ventures’ Neeraj Agarwal will join as a board observer. The raise comes as monthly downloads of the open source project pass 10,000. To date, more than 1,000 contributors have helped translate Mattermost into 16 languages.

In the five years since its founding, Mattermost has managed to attract some heavy-hitting customers, including Uber, which deployed uChat — a custom chat app built on top of Mattermost — internally in 2017. It’s able to process tens of thousands of users and over 1 million messages daily, Uber says, enabling the ridesharing company’s hundreds of teams to migrate nearly 20,000 existing chat rooms from HipChat and Slack.

Other Mattermost clients and users of note include Tesla, Boeing, the National Aeronautics and Space Administration (NASA), the European Organization for Nuclear Research (CERN), ING Bank, CVS, Bungie, Johns Hopkins, Tesco, Cigna, Samsung, McKinsey & Company, Affirm, Deloitte, Valve, Airbus, the U.S. Federal Reserve, Intel, AIG, Bristol-Myers Squibb, SAAB, Bosch, Daimler, the United Services Automobile Association, and countless others.

6 Likes
5

The way Slack becomes sticky in your company is when you build critical workflows that leverage one of the 1,500 apps that Slack integrates with. For example, our software development team uses Slack as follows:

  1. Github - Every time a developer pushes a code update to github, we automatically get a notice in the “New Build” chat room, and we then talk about reviewing the code, etc.

  2. Jenkins - Every time Jenkins runs a suite of automated tests on a software release, and a test fails, we get notified in the “Jenkins” chat room, so we can talk about it and take action.

  3. New Relic - Every time New Relic triggers a memory, CPU or network alert on any server, we get notified in the “New Relic” chat room, so we can discuss what action to take. We also integrate New Relic to PagerDuty, so that the Ops staff know about the issue.

  4. Inter-company collaboration - Pretty much every one of our partners and vendors ask us to add them as a Slack channel in order to collaborate on a project. This is what makes Slack viral. I have never had a company ask us to be added to their Microsoft Teams or any other chat software channel.

When Slack becomes embedded in your workflows like this, it becomes extremely difficult to get rid of it. So it’s viral and it can be extremely sticky. That explains why Slack has 10 million+ daily active users, and an annual revenue run rate of $540 million growing at 67% YoY.

Ron

28 Likes
6

There is an excellent article comparing Slack to Zoom at https://tomtunguz.com/slack-s-1-analysis/

Some excerpts:

  • Both of these businesses are growing incredibly quickly. Slack grew 110% and 82% in 2018 and 2019, compared to Zoom’s 149% and 118%.

  • Across the peer set, Slack’s revenue at IPO is substantially larger than others: 20% larger than Zoom and Atlassian, and 371% larger than New Relic.

  • Slack has 88k customers compared to 51k for Zoom.

  • Let’s compare gross margin. Slack’s gross margin is consistently five to six points above Zoom.

  • Slack’s business is a marvel of scale, expansion and growth. It’s going to be an exceptionally valuable business.

4 Likes
7

an annual revenue run rate of $540 million growing at 67% YoY.
The company will IPO at $17+B valuation. I cannot shake off the feeling that the individual investors buying at these valuations are playing “greater fool” game.

8

At what time will it begin trading?

9

At what time will it begin trading?

Just find out. It is trading later than most IPO’s, likely between 11:30 am and 12:30 pm, so any minute now.

10

Not clear on share counts yet, but I have seen a few articles (probably just plagiarizing each other) stating that $28 would equal about $17b.

Trading at $40 or so now, which equals $24b.
One article did say 599m total shares, which works with the math.

TTM revenue was $400-ish, giving them a TTM P/S of 60. Yay. Not as silly as ZM, but sillier than CRWD. Welcome to insanity land, folks.

Grew 82% last year, but “only” 65% or so in latest Q, and they likely threw in a lowball forecast in the 50% range for $600m for their current fiscal year. So forward P/S is 40…you know…higher than ZS at TTM.

Good luck out there.

Dreamer

6 Likes
11

Slack has multiple class of shares and some of the brokerages showing only one class of shares as share count. Just be aware…

1 Like
12

sales are slowing substantially, now at 67%. When questioned this am the CEO fudged about growth rates. He said you had to balance the now larger size against future growth rates. I would wait a few quarters. Great company/product and sticky but growth rate just slowing too much for my taste.

1 Like
13

FWIW, today in my department’s staff meeting, I brought up Slack (the company, product): “What do you all think of Slack?”

Here is what I got:

  • For context, my department is Commercial Operations, so lead and/or support Marketing, Sales, Sales Operations, Training, Events & Meetings, IC, Data/CRM, Commercial Communications, among others.

  • Our company currently has Microsoft Office suite of products, so we have access to Teams and Skype. We also have Webex. I personally use Skype for messaging and Webex for conference calls (I do not use Teams at all. The only group in my organization that I’ve seen using it is the IT group).

  • There were about 10 people in the room and over the phone (one person): our department VP, four directors, three managers, our HR business partner, and our IT PM business partner

  • The first reaction…literally, almost immediately: “It’s great!!! Well, I’ve never used it, but heard it’s awesome.”

  • Immediately followed by another person saying: “Ehhh, I’ve heard mixed reviews. I’ve never used either but, eh, I don’t know…I’ve heard mixed reviews.”

  • Followed by a third person saying: “Yeah, I’ve used it. We had in my previous company. You would be talking to someone and they would say ‘I’ll send you the deck in a few minutes’ and an hour later you would ask the person ‘Hey, haven’t seen the slides in my email, did you send it?’…to which they would respond ‘yeah, I slacked it to you earlier.’” We all started laughing! Then she continued with “yeah, it is supposed to reduce the number of emails you get. And it does that. But then you are getting ‘slacked’ all the time. My thoughts? Meh!”

And that was the end of the discussion.

So, there you have it…small sample size - 10 total people, n = 3 that provided thoughts/feedback: one positive (no experience with the product), one neutral (no experience with the product) and one neutral-to-negative (had experience with the product).

We’ll see what happens. I’m staying on the sidelines for now.

Happy investing!
Luis
@brandstudere

Long: AYX, MDB, OKTA, SMAR, SQ, TTD, TWLO, ZS, ZM

8 Likes
14

The comparison of ZM to WORK is interesting. Even more so considering that ZM offers their own group chat system fully integrated into their collaboration product. 10 year searchable archive, easy scaling of 1-1 to group chats, and file sharing.

I see a possible future where ZM eliminates the need for WORK in it’s customer base the same way Teams would do this inside MSFT customers, or Google with Hangouts. I know WORK has marketed their ZM integration capabilities, but you really don’t hear this from the ZM side.

4 Likes
15

I was thinking about Slack today and recalled that I had listened to this interview with Slack’s CEO Butterfield earlier this year. I think it provides a nice 50,000-foot view of Butterfield and the company. I learned more about him, how he thinks about the world, and Slack. Not sure if anyone has seen this before.

https://www.stitcher.com/podcast/national-public-radio/how-i…

Here are some of my initial takeaways:

  1. Butterfield is inspired by complex problems. He tried twice to develop a never-ending video game, out of that he developed two tools (Flikr and Slack).

  2. He knows what failure feels like. I think this is more important than we often think. Sure, we expect high performance from a leader, but sometimes there are issues/problems and when those come up it is important that they are able to recognize it.

  3. Slack takes serious buy-in from companies looking to adopt and the company is very aware of this. But once used, they are confident it is very sticky for a number of reasons. The longer a company has it, the more sticky the service becomes.

  4. Slack-based collaboration is an approach/mindset. You don’t just start using one day and then think about something different the next day. These shifts take time and from the very beginning they have refined their pitch to address these concerns.

Hope you enjoy!

11 Likes